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PURSUANT TO THE “INTERNAL AFFAIRS” DOCTRINE, PLAINTIFF, A NEW YORK CORPORATION AND BENEFICIAL OWNER OF SHARES IN BARCLAYS, AN ENGLISH CORPORATION, DID NOT HAVE STANDING TO BRING A DERIVATIVE SUIT ON BEHALF OF BARCLAYS AGAINST OFFICERS AND MANAGERS OF A NEW YORK AFFILIATE OF BARCLAYS IN NEW YORK (CT APP).

The Court of Appeals, in a full-fledged opinion by Judge Cannataro, over a comprehensive dissenting opinion, determined that the Business Corporation Law (BCL)  (sections 626(a) and 1319(a)(2)) has not displaced the “internal affairs” doctrine, a choice-of-law rule providing that the substantive law of the place of incorporation governs disputes about the rights and relationships of corporate shareholders and managers. The Court of Appeals affirmed the lower courts’ rulings that plaintiff, a New York corporation and a beneficial owner of shares in England-based Barclays, did not have standing to sue, on behalf of Barclays, directors and officers of Barclays New York-based affiliate in New York:

The corporation at the center of this appeal is Barclays PLC (Barclays), a bank holding company incorporated under the laws of England and Wales and headquartered in London. Plaintiff Ezrasons, Inc. is a New York corporation and a beneficial owner of Barclays shares. In 2021, plaintiff commenced this action on behalf of Barclays against almost four-dozen current and former Barclays directors and officers and a New York-based affiliate, Barclays Capital Inc. (BCI). The complaint alleged that the individual defendants, aided and abetted by BCI, breached fiduciary duties owed to Barclays under English law, causing significant injuries to the company. * * *

Supreme Court granted defendants’ motion to dismiss the complaint, explaining that under the internal affairs doctrine, foreign law governs the question of whether a plaintiff has the right to sue corporate management on behalf of a foreign corporation. The court rejected plaintiff’s argument that the legislature intended to override that choice-of-law rule when it enacted sections 626 (a) and 1319 (a) (2) of the BCL, agreeing with four decades of case law holding that those provisions “simply confer[] jurisdiction upon New York courts over derivative suits on behalf of out-of-state corporations, but do[ ] not require application of New York law in such suits” … .

The Appellate Division unanimously affirmed, agreeing with Supreme Court that plaintiff lacks standing to pursue this shareholder derivative action on behalf of Barclays … . … [T]he Appellate Division rejected plaintiff’s argument that sections 626 (a) and 1319 (a) (2) displace the internal affairs doctrine and preclude application of English standing law … . Ezrasons, Inc. v Rudd, 2025 NY Slip Op 03008, CtApp 5-20-25

Practice Point: Business Corporation Law sections 626(a) and 1319(a)(2) do not displace the “internal affairs” doctrine which provides that the substantive law of the place of incorporation (England in this case) governs disputes about the rights and relationships of corporate shareholders and managers. Here a New York corporation which holds shares of an English corporation could not sue the officers and managers of a New York affiliate of the English corporation in New York.​

 

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